Abstract

Recent public discussion has focused on inequality and social justice, while economists have looked at inequality's adverse effects on economic growth. One economic theory builds on the empirically negative relationship between income and fertility observed in the post demographic transition era. It argues that rising inequality leads to greater differential fertility -- the fertility gap between rich and poor. In turn, greater differential fertility lowers the average education level, as the poor invest less in the education of their children. We show that the relationship between income and fertility has flattened between 1980 and 2010 in the US, a time of increasing inequality, as the rich increased their fertility. These facts challenge the standard theory. We propose that marketization of parental time costs can explain the changing relationship between income and fertility. We show this result both theoretically and quantitatively, after disciplining the model on US data. Without marketization, the impact of inequality on education through differential fertility is reversed. Policies, such as the minimum wage, that affect the cost of marketization, have a large effect on the fertility and labor supply of high income women. We apply the insights of this theory to the literatures of the economics of childlessness and marital sorting.